Loading...
HomeMy WebLinkAbout2011-12-05 SSPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE The Finance and Corporate Services Committee met this date commencing at 9:03 a. m. Present: Councillor S. Davey -Chair Mayor C. Zehr and Councillors B. Vrbanovic, J. Gazzola, Y. Fernandes, K. Galloway, P. Singh, B. loannidis, Z. Janecki, F. Etherington and D. Glenn-Graham. Staff: C. Ladd, Chief Administrative Officer J. Willmer, Deputy CAO, Community Services P. Houston, Deputy CAO, Infrastructure Services D. Chapman, Deputy CAO, Finance & Corporate Services R. Regier, Executive Director, Economic Development R. Bunn, Chief Information Officer /Director of IT R. Gosse, Director, Legislated Services & City Clerk J. Witmer, Director of Operations J. Evans, Director of Revenue S. Adams, Director, Community & Corporate Planning S. Turner, Director, By-law Enforcement M. Hildebrand, Director, Community Programs & Services C. Fletcher, Director, Facilities Management M. Selling, Director of Building G. Murphy, Director of Engineering J. McBride, Director of Transportation Planning A. Pinard, Director of Planning W. Malcolm, Director of Utilities T. Beckett, Fire Chief R. Hagey, Interim Director /Manager of Financial Planning A. Bailey, Senior Manager Communications D. Campbell, Manager, Community Resources Centres D. Keelan, Manager, Aquatics & Athletics K. Kugler, Manager, The AUD & Community Arenas L. Palubeski, Manager, Program & Resources Services N. Gollan, Manager, Stormwater Utility G. McTaggart, Manager, Infrastructure Asset Planning C. Bluhm, Downtown Community Development J. Young, Manager, Special Events D. Gilchrist, Committee Administrator C. Goodeve, Committee Administrator FCS-11-217 - 2012 OPERATING BUDGET The Committee considered Finance and Corporate Services Department report FCS-11-217, dated November 16, 2011 concerning the City's 2012 Operating Budget, together with a consolidated budget summary by Department /Object and Budget Issue Papers for specific items. In addition, the Committee was in receipt this date of revisions to the original Operating Budget package. Mr. D. Chapman presented the Operating Budget submission, advising that it has been developed in accordance with Council's 2012 Budget guidelines. He stated that the Budget maintains existing service levels with no new programs or services proposed, nor any new tax supported Full Time Employees (FTEs). He indicated that in order to achieve this target, a 2% reduction was applied to all controllable costs. He stated that these reductions have already been included and go beyond the 2% cut guideline established by Council. He commented that while the budget submission does not include cuts to services, this may still occur. He noted that the potential 2% reduction list contains items that if approved would reduce service levels. In addition, the lack of funding to keep pace with growth will have the effect of eroding service levels over time. He advised that although the impact may be minor in each year, on a compounding basis it can become significant. He stated that at present, only a minimal allocation has been put forward to increase the Operations Division's Budget to address the geographic outward expansion of the City; however, this is not sufficient to keep pace with the City's rate of growth. Mr. Chapman pointed out that the City has been facing Operating deficits in recent years, which cannot be funded indefinitely; therefore, the underlining issues need to be addressed. Accordingly, a more accurate level of budgeting for Winter Control is being SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE 1. FCS-11-217 - 2012 OPERATING BUDGET ICONT'D proposed as well as a phase out of the reliance on transfers from the Tax Stabilization Reserve Fund. He indicated that several issues remain unaddressed as they were not considered affordable, those being: hydro costs, gapping and By-law Enforcement revenue shortfalls. He stated that those items need to be dealt with in the medium to short-term, or the City will continue to experience Operating deficits. In response to questions, he advised that if the three excluded items were added to the Budget, it would equate to an additional 1.5% increase to the proposed tax levy. Mr. Chapman reviewed the proposed tax rate increase, including and excluding the Economic Development Investment Fund (EDIF), relative to the Consumer Price Index (CPI), and Municipal Price Index (MPI) over the past ten years. He stated that reasonable annual tax increases, combined with the ongoing budget efficiencies and reductions, has enabled the City to keep property tax increases in line with the rate of inflation. In addition, tax increases, including EDIF have remained in the range of MPI, and excluding EDIF are within the range of CPI. Mr. Chapman next reviewed a comparison of municipal costs for an average household between Kitchener and the Cities of Waterloo and Cambridge in 2011, showing that Kitchener is in the middle range. In response to questions, he advised that the difference between the assessed values for an average household in each of the three Cities is consistent with what was presented as part of last year's budget submission. He stated that this is reflective of the Municipal Property Assessment Corporation (MPAC) phase-in of assessment increases from 2008 to 2012. He noted that MPAC's phase-in of assessment increases would not impact the City's tax levy. In reviewing the utilities costs paid by the average homeowner in each of the three Cities, Mr. Chapman advised that the major difference is the costs for natural gas. He explained that Kitchener Utilities' purchases gas at fixed prices up to five years in advance to provide stable pricing for gas supply. He indicated that Waterloo and Cambridge use Union Gas, who buys all of their gas at the prevailing spot price. He commented that historically, Kitchener's price has been lower than Union Gas. He noted that the current situation is due to the drastic decrease in gas prices since mid-2009; however, the two rates are anticipated to converge within the next two years. Mr. Chapman advised that according to the 2009 survey conducted by Environics, residents' value high services over low taxes by a ratio of more than 2:1. He stated that the feedback from that survey shows citizens believe that the City is headed in the right direction as well as being satisfied with City government and services. He indicated that the City is well positioned relative to its strategic directions to ensure that it has competitive and rationale taxation levels. TAX SUPPORTED OPERATING Mr. R. Hagey gave an overview of the net expenditure by Department and agreed to provide an analysis that breaks out the general expense item into its major component parts. Additionally, at the request of Councillor Y. Fernandes, staff further agreed to provide an analysis breaking down total expenses by cost element (e.g. salaries, utilities, etc.). Mr. Hagey reviewed the proposed Tax Levy Change Summary and the detailed listing of items included in the change. He explained that proposed base budget changes from the 2011 budget equates to a tax levy increase of 2.11%. However, taking into account budget sustainability adjustments of 0.77%, fringe benefit changes of 0.71% and items related to growth equalling -0.69%, it increases to 2.9%. When added with the Economic Development Investment Fund (EDIF) of 0.97%, the proposed tax levy increase for 2012 is 3.87%. He stated that the 2011 tax levy base is $96,726,000., adding that a 1% change in the Budget would impact the average household in Kitchener by $9.56. He then reviewed some of the items impacting the tax levy change and the associated Issue Papers. Issue Paper #1 -Budget sustainability Adjustments Concerning the two year phase-out of the additional Parking Enterprise dividend in the amount of $563,000., Councillor K. Galloway questioned the feasibility of phasing-out only $226,000. in SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE 1. FCS-11-217 - 2012 OPERATING BUDGET ICONT'D 2012 as opposed to the recommended $337,000. Mr. Hagey acknowledged that this could be examined; however, the projections for the Parking Enterprise are coming in under what was originally estimated. He cautioned that delaying the removal of the additional dividend would adversely affect the deficit already being experienced by the Enterprise. He confirmed that the 2012 Budget does assume revenues from the Charles / Benton as well as the Civic Centre garages, and is still projecting that there would be insufficient funds to maintain the higher dividend. Questions were raised regarding the proposed increases for Winter Control. Ms. P. Houston advised that the challenge with phasing-in the $400,000. proposed for the Winter Control budget, is that an analysis has shown that an additional $700,000. is needed to reach a sustainable funding level. She stated that the proposed funding represents approximately half of what is needed and reducing it would only further compound the deficit going forward. She pointed out that an Operations review will be conducted in 2012, which forms part of the rationale as to why staff are not proposing to phase-in the full amount at this time. Mr. J. Witmer advised that an analysis of the past eight years has shown the Operations Division to be continually under-budgeted. He indicated that this year began with a $700,000. deficit, adding that the requested $400,000. is based on an eight year average adjusted to 2010 levels. He stated that the reality is when the weather comes staff have to spend the funds necessary to clear the roads. He added that if the base budget is not at an appropriate level, then the gap in funding continues to increase. He advised that at times, such as 2010 when the City experienced a relatively light winter, surpluses were reallocated to balance the remainder of the Operations Division budget that was inadequate to support the cost of providing services. He stated that the requested $400,000. is to ensure sufficient funding is available during an average winter and to provide a certain level of control over the gap that occurs if there is a greater than average accumulation of snow in a given year. He pointed out that over the past eight years they have exceeded budget estimates by $1.2M to $1.8M, which creates a significant challenge for the rest of the Corporation. He indicated that the requested funding is intended to help stabilize the Winter Control budget and reduce the impact of future fluctuations. In response to further questions, Mr. Hagey advised that a specific reserve fund has not been established for Winter Control, adding that typically over-expenditures have been financed through the Tax Stabilization Reserve Fund (TSRF). He noted that the TSRF has virtually a zero balance and would not be able to accommodate the current Winter Control deficit, which is currently estimated at $1.9M. Mr. Chapman stated that the projected deficit in the Winter Control budget is intended to be mitigated through diverting capital close-outs that have historically gone toward items in the Capital Forecast. He commented that the City has been fortunate to have these capital close-outs to alleviate the projected operating deficit. He cautioned that the City cannot rely on these kinds of measures to be present in the future, adding that what is being put forward is a budget that reflects a realistic cost for a service based on the historic average. Questions were raised as to what would happen if no funding mechanism was in place to address the projected Winter Control shortfall. Mr. Hagey advised that the $1.9M deficit would then become item one of next year's budget, and would represent an unavoidable 2% increase to the tax levy for that year. He indicated that the year-end for the 2011 Budget is anticipated to be finalized by early February 2012. Mr. Chapman noted that should a deficit still remain at that time, the 2012 Budget would need to be re-opened provided no billings have been issued. Issue Paper #2 -Fringe Benefits Changes Questions were raised as to whether the City was required to provide benefits to part-time and temporary employees. Mr. Hagey advised that the amount of benefits provided to temporary and part-time employees is substantially less than what is provided to full-time staff. Mr. Chapman added that also included in the fringe rate are things such as, Employment Insurance (EI) and Canadian Pension Plan (CPP) contributions provided to all employees. At the request of Councillor B. loannidis, staff agreed to provide further information on the benefit plans across the various employee groups and the City's benefit requirements. SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 5. 2011 - 166 - CITY 1. FCS-11-217 - 2012 OPERATING BUDGET ICONT'D1 Issue Paper #3 -Growth Items In response to questions, Mr. Witmer confirmed that the requested $180,000. for turf maintenance is needed in order to maintain existing service levels. He stated that reducing the time between cuttings of parks and road allowances from the current four weeks to five would not be staffs' preference. He confirmed that if funding is not available and the community is willing to accept a lower service level; the requested $180,000. has been included as a potential 2% reduction item, given that it relates to aesthetics and playability. Questions were raised regarding whether Neighbourhood Associations were asked to pay a fee for use of the Active Network (former CLASS system) for program registrations. Ms. D. Campbell advised that a pilot project is currently being undertaken at four community centres and those Neighbourhood Associations have committed funds toward the cost difference related to staffing, credit card /debit fees and the use of the Active Network system. Clarification was requested regarding assessment growth. Mr. Hagey advised that when staff were originally forecasting the budget an assessment growth of 1.50% was used. He stated that actual assessment growth has come in at 1.82%, and the budget has been adjusted accordingly. He noted that the increase in assessment growth equates to $304,000. of additional revenue, which is proposed to be allocated to fund Active Network software costs, credit card fees, and Kitchener Operations Facility (KOF) operating costs. He further clarified that the 2% assessment rate used for the Capital Forecast was not re-adjusted as that is based on a ten year average. Mr. Chapman added that assessment growth only benefits the Operating budget. He stated that the reason why it is mention in relation to the Capital budget is because it is used as a basis to indicate how much will be transferred from the tax base supported Operating budget into the Capital program. He noted that the $97,000. contribution to the Capital program assumes a 3% inflation rate and 2% assessment growth; and, if 1.82% was used there would be a minimal difference in the amount being transferred. Councillor S. Davey requested that additional information be provided on how the City negotiates credit card agreements. Councillor J. Gazzola asked for further information as to how widely credit cards used, and if the City can charge customers a convenience fee. Mr. Chapman commented that under the current Merchant Agreement, the City may be precluded from adding a service charge; however, staff agreed to further investigate this issue. UNFUNDED ITEMS Mr. Hagey advised that there are six items that have not been included as part of the budget submission totaling $1.5M, as outlined in Issue Papers #4 to #9. He noted that moving forward with any of these items would serve to effectively increase the base Operating budget. Issue Paper #4 -Gapping Councillor J. Gazzola requested clarification regarding the City's gapping program. Mr. Hagey advised that gapping is an approved process whereby unused salary and fringe benefit dollars during a staff vacancy are transferred from the departmental operating budgets to the gapping budget. He agreed to report back with more detail on the current gapping program. Issue Paper #5 -Tax Stabilization Reserve Fund (TSRF) In response to questions, Mr. Hagey advised that historically the TSRF has been used as a budgeted funding source to reduce the need for tax rate increases. He stated that this has resulted in a depletion of the Reserve to the point where it is projected to have a balance of approximately $2,000. in 2012. He noted that this means there are no contingencies available to mitigate any unforeseen issues, or to accommodate a budget variance. He indicated that the benchmark target recommended for this kind of Reserve is 5%-15% of the net tax levy, which equates to $4.7M - $14.2M. He commented that his preference would be to completely eliminate the transfer from the TSRF to the tax base and leave the remaining $455,000. in the SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE 1. FCS-11-217 - 2012 OPERATING BUDGET ICONT'D Reserve. He stated that typically, these kinds of Reserves are funded through year-end surpluses and by having a more sustainable Operating budget over time the balance in the Reserve would naturally increase. He confirmed that the TSRF had a pervious balance of approximately $10M; however, due to issues, such as the Gaukel Street remediation, this balance was depleted. He stated that fundamentally having funding from the TSRF, which has no ongoing funding source, applied toward the Operating budget is not sustainable; as this does not allow the Reserve to be replenished. Mayor C. Zehr advised that the Region of Waterloo has a stabilization reserve similar to the TSRF, which is impacted by social services payments in the same manner that Winter Control affects the TSRF. He stated that the Region's reserve is capped at $10M and measures are built into the annual budget to maintain that balance. He indicated that this reserve allows the Region to mitigate any major financial issues it may face in a particular year. He expressed support for eliminating reliance on the transfer from the TSRF to the tax base would help to re- establish asimilar safety net for the City. Mr. Chapman responded to further questions, indicating that a vast majority of municipalities have a tax stabilization reserve, with some having multiple stabilization reserves earmarked for specifically items, such as Winter Control. He added that in the past, the TSRF was replenished through operating surpluses as well as supplementary taxes and investment income. He stated the best means of funding the TSRF is by having a balanced budget, whereby any surpluses can be used as a mechanism to re-build the Reserve. Issue Paper #6 - Hydro costs Ms. C. Fletcher advised that Facilities Management uses a number of strategies to reduce hydro costs including lighting retrofits using the most recent technology in all City facilities and programming lighting levels to reduce costs as much as possible while maintaining a safe environment. In regard to KOF, Ms. Fletcher advised that exterior lighting levels are reviewed from the standpoint of safety and interior lights are turned off where not in use and/or emergency lighting is only applied. Ms. R. Bunn added that computers in City facilities are programmed to power saving mode to save electricity and most staff do turn off their computers at the end of the work day, except where there is a need to access their work after hours. Councillor Gazzola questioned if time of use billing applies to City facilities. Mr. J. McBride advised that for street lights, the City purchases from the spot market to obtain the lowest price possible and since introducing this purchasing method three years ago, the City's hydro costs have decreased. Ms. Fletcher advised that Facilities Management uses a similar purchasing method; however, in respect to the projected deficit, she pointed out that no increase was provided to the electricity budget in 2010, nor since then, which has compounded the problem. Councillor Gazzola questioned if staff could request a change in dividend received from the Hydro Utility to mitigate present circumstances. Mr. Chapman advised that staff can only control the transfer to be made from the City's Hydro Reserve to the tax supported Operating budget and cannot advise the Hydro Board in respect to the amount of dividend to be received by the City. Councillor Gazzola commented that the Hydro Utility is a subsidiary of local government and therefore, it was his opinion that staff should be able to make recommendation to the Hydro Board in respect to the dividend. Mr. Chapman stated that this would be beyond staff's authority but noted that Council, as a shareholder, could approach the Hydro Utility in respect to the dividend. Councillor P. Singh questioned how Council could give direction to the Hydro Utility in respect to the dividend. Mayor Zehr advised that Council cannot dictate to the Hydro Utility because it is a separate business corporation, but could request consideration of an increase in dividend that would then be up to the Hydro Board to accept or reject. He added that Council's only control is through the Council representative they appointed to the Hydro Board. Mayor Zehr stated that as a separate incorporated body, Hydro has its own fiduciary responsibility to maintain operation of its not-for-profit organization, as well as, maintain its own reserves for its own purpose and capital needs and they have their own policy in place with respect to SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE 1. FCS-11-217 - 2012 OPERATING BUDGET ICONT'D disbursement of dividends. Councillor Singh inquired as to the last time an increase was requested. Mayor Zehr advised that continual increased dividends have been received from Hydro over the past several years and in presentation of their annual report in May 2011, they indicated another increase in dividend is expected to come at year-end for 2012. Mayor Zehr suggested and it was agreed, that Hydro's policy on dividends be circulated to Council for information. Councillor Singh inquired as to when the City's policy on best practices for energy management was last reviewed. Ms. Fletcher advised that a review is pending for 2012 with the intent to develop a new Energy Management Strategy for Council's consideration. Issue Paper #7 -Parking Fine Revenue Councillor K. Galloway inquired if any consideration has been given to decreasing the set fine for tickets issued on private property to encourage private officers authorized to issue these tickets to enhance their enforcement practices. Mr. S. Turner advised that a review of the City's Traffic and Parking By-law is being conducted for presentation in 2012 and this issue could be considered as part of the review and recommendation brought back in the context of all parking ticket fines. Councillor Galloway questioned if the decrease in private property ticket revenues is resulting from a decrease in parking violations. Mr. Turner commented that he believed the increase in set fines for private property has resulted in more compliance and is the primary reason for a reduction in revenues; however, he noted that there are other factors that also contribute, advising that there has also been an increase in the number of persons disputing tickets and taking them to Court where they may be dismissed or the trial delayed, resulting in either no fine revenue or a delay in receiving revenues. Councillor Gazzola requested clarification of the amount of fines for private property versus public property. Mr. Turner advised that there is a variety of set fines based on approximately 45 different parking violations. For private property the set fine is currently $25. and public property fines vary dependent on the violation (e.g. time limit fines at $20). Mr. Turner added that educational programs are geared toward compliance and more compliance correlates to less revenue, which is why parking fine revenues should not be looked upon on the same premise as user fees which are controllable; whereas, fine revenues are not. Councillor Gazzola questioned if expenses are decreasing in relevance to the decrease in revenues. Mr. Turner advised that the City does not have significant expenditures with respect to tickets issued on private property as the majority of expense is absorbed by the private officers who have requested the ability to issue tickets on their own property. He confirmed that staff works in conjunction with the Ontario Ministry of Transportation (MTO) to collect unpaid parking tickets; however, it can take up to 18 months for MTO to recuperate some fines. Mr. Turner agreed to provide additional information as to whether the City would be able to provide a portion of its profits from private property tickets to the private officers who issue those tickets. He cautioned that while Legal Services staff would need to be consulted, this could equate to enforcement on a commissioning system; which may not be permissible the under existing provincial legislation. Issue Paper #8 -Leisure Access Service Overview Councillor Gazzola questioned the feasibility of reducing the amount of benefits provided through the Leisure Access fee subsidy program. He suggested that as taxpayers are facing an additional rate increase, it may be reasonable to provide a somewhat smaller benefit to compensate for the City's budget shortfalls. Ms. L. Palubeski advised that customers receive the same amount of annual subsidies through this program as they have in previous years. He stated that a challenge with reducing the benefit amount is that fees for leisure services continue to increase on an annual basis; therefore, any reduction would only serve to increase the gap with respect to affordability. She added that she does not know of any other municipality that has contemplated decreasing their annual allotment toward this kind of program. She responded further that as of December 1, 2011, the negative budget variance has increased to $17,000. She added that there has been SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE 1. FCS-11-217 - 2012 OPERATING BUDGET ICONT'D no indication to date as to whether funding will be contributed by the Canadian Tire JumpStart Foundation to assist in alleviating the existing budget shortfall. Several members spoke in opposition to reducing the benefits provided through the Leisure Access fee subsidy program. It was noted that this subsidy goes toward assisting the most vulnerable sector of society and enables those people to be active in the community for a relatively small cost. In addition, it was pointed out that this kind of upfront investment helps to offset future social service costs to the community. Councillor Gazzola indicated that he was not recommending a cut to this program; rather, he was merely inquiring as to whether consideration had been given to a possible reduction. Issue Paper #9 -New Eco-Event Councillor Fernandes questioned if youth bands could be recruited to participate in the proposed new Eco-Event as a means of reducing the costs. Mr. J. Young stated that may be possible; however, consideration would need to be given to the quality of each band. He noted that it could take considerable staff time to undertake such a review; thereby, making it impractical. He advised that the proposed event would run along King Street from Civic Square to Market Square, with multiple key attraction points along the route. He added that the proposed budget was based on lessons learned from other events; such as, Square to Square. He indicated that the timing of holding the proposed Eco-Event in August relates to the potential for nice weather as well as the availability of King Street. Councillor Fernandes stated that while she is supportive of the new Eco-Event, suggesting that its budget should be reduced from the proposed $25,000. to $15,000. She added that as the Event grows the budget could be increased accordingly. Councillor Galloway expressed concerns with pursuing the new Eco-Event, as the potential 2% reduction list contains a proposal to cut $25,000. from the Special Events budget; thereby eliminating one of the City's existing festivals. She also pointed out that as this is an unfunded item, any proposed allocation would represent an increase to the Operating budget. Councillor B. Vrbanovic advised that he was surprised to see an existing festival on the potential 2% reduction list. He stated that he did not believe the intent was to replace Car-free Sunday /Square to Square event with a new Eco-Event; rather, it was to dialogue with the City of Waterloo on hosting alternating events aimed at attracting people to each City's downtown core. He requested that additional information be provided on the possibility of partnering with the City of Waterloo for the proposed new Eco-Event. Councillor loannidis spoke in agreements with the comments made by Councillor Vrbanovic and requested that additional information also be provided on specific communities that have run similar Eco-Events. Issue Paper #10 -Site Plan Inspector Mr. Hagey advised that the Site Plan Inspector position is intended to be funded through revenues generated by site plan fees; and therefore, the requested $93,000. would have zero impact on the tax base. Questions were raised as to whether it was feasible to hold off on implementing the new position so that site plan revenues could be used to offset other costs. Mr. A. Pinard advised that in 2008 the site plan fees were restructured to generate additional revenue for staff resources in response to concerns from the development industry regarding the time it was taking to process a development applications. He stated that the Site Plan Inspector would coordinate the closing of site plan files by ensuring that approved site plan developments are implemented in a timely manner as laid out in development agreements. He noted that this work is currently carried out by three Urban Designers whose core function is plan review and implementation of the Urban Design Manual. SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 5. 2011 - 170 - CITY OF KITCHENER 1. FCS-11-217 - 2012 OPERATING BUDGET (CONT'D) Mr. J. Willmer responded further that when the fees were restructured in 2008 it was done with the intent of offering a more efficient and expeditious service. He suggested that if the City is not prepared to meet that service level, than consideration should be given restructuring the site plan fees. He commented that the proposal would enable the City to provide a better level of service at no cost to the taxpayer. Councillor D. Glenn-Graham questioned if it would be possible to hire a Site Plan Inspector on a part-time basis, and staff agreed to report back on the feasibility of that proposal. Mr. Pinard advised that this is an ongoing function and the intent of the new position is to free-up time for the Urban Designers to focus on plan review as well as carrying out this work function more rapidly. He noted that given the qualifications and accreditations required, it may not be possible to recruit someone to fill this position on a part-time basis. BOARDS Issue Paper #PR25 -Centre In The Square (CITS) Potential Budget Reductions Mr. Hagey reviewed the Operating budget for the Centre In The Square (CITS). Mr. Bill Nuhn, Interim General Manager, CITS, was in attendance, advising that to reduce their 2012 budget by 2% would require a cost reduction of approximately $27,402. He added that this is proposed to be accomplished by reducing in Box Office Hours; eliminating the Director of Finance overlap; and, reducing conference attendance. He confirmed that as CITS is requesting a 2.1% increase in base funding over what was provided in 2011, if the proposed reductions are applied, this would equate to only a 0.1% increase. The Committee then recessed at 12:13 p. m. and reconvened at 1:20 p. m. with all members present. Issue Paper #PR25 -Kitchener Public Librar Mr. Hagey reviewed the Operating budget for the Kitchener Public Library (KPL). Mr. D. Carli, Chair KPL Board, was in attendance to address questions from the Committee. He advised that with the completion of the expansion of the Main Branch, they anticipate that usage will increase by 50% to 100%, as has been experienced in other municipalities such as Whitby and Winnipeg. Consequently, the cost of operations will also increase. Mr. Carli advised that the business plan prepared in 2004 placed these additional costs at $1.5M but they have been able to reduce these added costs to $613,000. in 2013 and to $204,000. in 2014. The Committee was then referred to Issue Paper PR24 on page OP-205 of the agenda. Councillor Gazzola noted that the financial support that the KPL receives from the Province has not increased and Mr. Carli confirmed that provincial funding has not changed in many years. He advised that the library association has petitioned the provincial minister for increases with no results. In response to questions from Councillor Fernandes, Mr. Carli advised that fewer books means longer waiting lists; and, the automated check-out is working well and is helping to reduce costs. Councillor Davey referred to Issue Paper PR24, questioning whether each category for possible reductions could be considered separately and Mr. Carli responded that although the City provides the operating funds, it is up to the Board to determine how they are allocated. Councillor Galloway questioned how much has been cut from the Library's resource budget in the past. Mr. Carli responded that in 2004/2005, 10% was cut from the resource budget and this year no increase has been requested; which means that there will be fewer books purchased due to rising costs. Respecting staffing and salaries, Mr. Carli noted that the 2004 Business Case showed that 18 additional staff would be required; however, this has since been reduced to eight. He advised that the cost of living increase awarded to staff in 2008/2009 was set at 1%, putting KPL staff further behind. In addition, in 2010, the training budget was reduced, which eliminated staffs' professional development day. SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE DECEMBER 5. 2011 - 171 - CITY 1. FCS-11-217 - 2012 OPERATING BUDGET ICONT'D1 ENTERPRISE OPERATING BUDGETS Mr. Hagey presented the Operating budgets for the City's enterprises, noting that they are self- funded through user fees and rates, as opposed to property taxes. He advised that in 2012, staff intend to seek Council's approval to establish stabilization reserves as well as capital reserves for each enterprise. He stated that these stabilization reserves should maintain a balance of 10%-15% of revenues, as a means of mitigating any unforeseen issues. Mr. Chapman noted that most utilities have these kinds of reserves in place. Mr. Hagey added that the reserve funds would provide additional transparency, as the exact amount of money in each reserve could be easily ascertained. He confirmed that the Building, Water and Sanitary Utilities reserves are governed by legislation and surpluses cannot be transferred to finance tax base expenses. Mayor Zehr requested that staff prepare examples of the reserves for two enterprises to enable Council to visualize what they would look like. Mr. Hagey presented the Operating budget for the Golf Enterprise, noting that revenues have dropped due to decreased usage. Councillor Gazzola commented that although the bottom line presented for 2011 is the same as what was presented in last year's budget, some of the figures have changed. Ms. Kugler advised that these changes are due some of the contracts not being finalized at the time the 2011 budget was presented. Councillor Gazzola then questioned the accuracy of the projected $117,000. in excess revenues over expenses, and Ms. Kugler advised that some figures have yet to be finalized, as Rockway is still open and Doon has just closed. Councillor Gazzola then stated that when Council considered the Doon Valley Golf Course expansion, it was anticipated that there would be a deficit of $190,000., but this has now increased. Ms. Kugler responded that last year there was a $700,000. reduction and staff undertook a review of the of the golf courses operations. She indicated that these studies are anticipated to be completed in February or March 2012. She advised that when the expansion was being considered, the number of existing golf courses was different, adding that over the last five years the industry has undergone some significant changes. She stated that Financial Services staff intends to undertake a review of the dividend process next year. She commented that once expansion costs have been paid, the financial position of the Golf Enterprise should be improved. Questions were raised as to the timing of when money would be available from the Golf Enterprise to transfer into a reserve fund. Mr. Hagey advised that if Council agreed to forgo a dividend, funding could be put into a reserve in 2013. In presenting the Building Enterprise Operating budget, Mr. Hagey advised that revenues in 2011 were higher than budgeted, adding that 2012 is also projected to be another positive construction year. He noted that it is difficult to forecast beyond 2012, given the global economic situation. In response to a question from Councillor Galloway, Mr. M. Selling advised that if interest rates remain low, the 2013 construction year should also be positive. He stated that history shows that an economic downturn occurs approximately every seven years; accordingly, one is anticipated to impact the 2014/2015 construction years. Respecting a reserve for the Building Enterprise, Mr. Hagey advised that legislation will not allow money to be transferred from the Building Enterprise to the tax base. A discussion took place concerning direct and indirect expenses paid by the Building Enterprise and Mayor Zehr requested a review of expenses, including all capital costs that could be charged by the City to the Building Enterprise. Mr. Hagey presented the Operating budget for the Parking Enterprise and referred the Committee to Issue Papers #11 and #12. He noted that debt charges have increased because the Civic District Parking Garage will be opening later than anticipated. Councillor Gazzola requested clarification regarding the revenue from subsidies and Mr. McBride explained these are due to such things as removing parking meters on the street and SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE 1. FCS-11-217 - 2012 OPERATING BUDGET ICONT'D allowing free parking in the City Hall parking garage on Monday evenings. With respect to increased revenues in future years, Mr. McBride advised that it is anticipated that the City would eventually own more parking garages, which would result in further revenues. In addition, he acknowledged that the number of cars in City parking facilities is reduced when rates are increased, noting that new businesses create additional demand for parking. In response to questions from Councillor Fernandes, Mr. McBride advised that in June 2011, $100,000. was approved for the Cycling Master Plan; however, this was not funded through the Parking Enterprise. He stated of that amount, $50,000. was used for Transportation Demand Management and $50,000. for a Project Manager. He noted that staff have not started to implement the Cycling Master Plan, as no one has been hired to undertake that work. UTILITIES Mr. Hagey presented the Operating budget for the Gas Works Utility and referred to Issue Paper #13. He advised that staff anticipate presenting a policy in 2012 concerning rates of return and the dividend to the City. He added that also in 2012, an evaluation of the Gas Works Utility is intended to be undertaken. Councillor Gazzola spoke to the transfer from the Gas Works Utility to the Capital budget, stating that he would prefer to see a transfer of $3M to the Tax Stabilization Reserve Fund. Mr. Hagey referred to Issue Paper #13, stating that such a transfer is not part of this budget. Councillor Gazzola stated that staff seems to have been conservative with this budget, and Mr. Hagey noted that if the Utility is less profitable in the future, then the reduction in revenue will accumulate over all years of the Forecast. Respecting rates charged to customers, Mr. W. Malcolm stated that a rate increase has not been proposed for 2012. Rates will remain the same until April 2012 and if necessary, an adjustment would be made in July 2012. Mr. Malcolm advised that there is no mark-up on the supply of gas, so the cost to customers depends on what the Utility has to pay. He also advised that 43% of the required amount of gas has already been purchased for 2012. He noted that prices are currently stable and no large increases are anticipated from the supplier. With respect to transportation costs, Mr. Malcolm advised that the City's rate is based on the TransCanada Pipeline rate and will be based on the rate decision made in 2012. Mayor Zehr referred to the Gas Rate Comparisons on page OP-17 of the agenda. He questioned what rate reduction would be possible and what effects a rate reduction would have on transfers to the reserve and tax supported functions. Mr. Chapman agreed to prepare an Issue Paper in this regard, noting that supply rates cannot be adjusted and delivery rates match those of Union Gas. Upon further questioning, he agreed to prepare an additional Issue Paper on reserve management. Mr. Hagey advised that the combined rate increase for water and sanitary is 6.9% based on current projections; however, this is likely to change as the Region of Waterloo is considering a lower Regional rate for 2012. He added that once a decision is made mid-December on the Regional rate, the City's forecast and projections will be updated. In response to questions from Councillor Gazzola, Mr. Hagey clarified percentage increases under the Water Utility for water retail rates, Region wholesale rates and consumption. Councillor Gazzola stated that it was his hope that the water and sanitary rates when finalized would be kept to the same percentage increase as the tax rate. He advised that he did not share the need for higher percentage increases as proposed, given water rates have increased by approximately 206% and sanitary by 302% over the past 10 years; and, are now on the plus side, negating the need to maintain large increases. Councillor Gazzola questioned if there was any reason his suggestion would not work. Mr. Chapman advised that staff could come back with an Issue Paper on differing rate scenarios; however, the City remains behind on its target for infrastructure replacement and the shortfalls continues to grow each year. He suggested that even though an increase may not be required in 2012, it would be prudent to do so in order to contribute to the building of reserves. SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE 1. FCS-11-217 - 2012 OPERATING BUDGET ICONT'D Councillor Gazzola inquired how the infrastructure replacement shortfall manifested. Mr. G. Murphy advised that as infrastructure ages so does the risk of increased system failures and the Accelerated Infrastructure Replacement Program (AIRP) attempts to stay ahead of the issue; however, much of the aging infrastructure is of a post-war timeframe and it becomes more likely for issues to occur. Mr. G. McTaggart added that the costs to this work gets more expensive each year and the amount of work that is required in the future related to post-war infrastructure is substantial. He stated that if the City does not keep pace with its replacement targets for 2032 and has to add the post-war work then, the impact will be significant and problematic. Mr. Hagey advised that the Water Utility is projecting a surplus at year-end which staff is recommending be transferred to the Water Stabilization Reserve. It was noted that water purchases from the Region have been declining at a greater rate than customer consumption, which is being experienced by all area municipalities and has been identified by the Region for investigation. He added that the decline has not been accounted for in the 2012 budget pending the outcome of the Region's investigation. The Water Utility's 2012 and 2013 forecast is currently based on a 6.9% retail rate increase and will be adjusted in accordance with the results of the Region's investigation. The Sanitary Utility is trending below budget due to higher inflow /infiltration from wetter than normal spring weather. Notwithstanding, asurplus is projected at year-end resulting from an off-set of capital close-outs and it is recommended the surplus be transferred to the Sewer Stabilization Reserve. The AIRP has met only 48% of the program target and Mr. Hagey advised that had original targets been met the City would have completed approximately 70 km of infrastructure replacement instead of only 33 km. The water and sanitary share of the shortfall represents $106M and is primarily attributed to unexpected construction price increases. He stated that other contributing factors include changes in environmental legislation, and increased demand among the construction industry due to an influx of municipal projects related to the Federal Infrastructure Stimulus Grant Program. Councillor Z. Janecki questioned if the projected increases for water and sanitary rates over the next 20 years can be attributed to development growth. Mr. Hagey stated that growth in part has some impact, but suggested that projections relate more to increased legislation; particularly in regard to water quality, and the additional work required for compliance. Mr. Murphy added that it should be kept in mind that rates are geared toward operation, maintenance and capital upgrades of water and sanitary infrastructure. He noted that since the Walkerton incident, substantial changes have been made in regulations to address drinking water quality and pointed out that the Region has put effort into undertaking significant upgrades for water and sanitary facilities such as Mannheim and other pumping stations / reservoirs. Mr. Murphy stated that while he understood the concerns regarding development growth, it was his opinion the primary reason for rising costs is due to regulatory changes. Respecting the Sanitary Utility, Mr. Hagey advised that surpluses are to be transferred to a Capital reserve; however, the overall this Utility is not meeting budget. The forecast for 2012 to 2016 is based on a 6.9% retail rate increase and a 7.9% processing rate increase, with the 7.9% going to the Region. Respecting implementation of the AIRP in 2004, Councillor Singh questioned whether the target can be met with the available resources. Mr. Murphy responded that staff are doing their best to meet the infrastructure target; however, to reach the goal of 8.6 km would require additional resources. Respecting increases to Regional water rates, Mayor Zehr advised that they have been modified as the increase started at 9.9% and is now 7.9%; however, this needs to be finalized by Regional Council. Respecting the Region's water costs, Mr. Chapman stated that the costs can be confirmed and included in an Issue Paper. Mr. Hagey then advised that a 3% increase in storm water rates is proposed for 2012 and each year of the Forecast. He noted that the budget is less than proposed, due to the mid-year discount instituted in 2011. SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE 1. FCS-11-217 - 2012 OPERATING BUDGET ICONT'D Councillor Fernandes questioned which municipalities have an infrastructure replacement program and Mr. Murphy responded that no other municipalities have a program like the one at the City of Kitchener and none of the existing programs have triple funding sources as we do. Mr. Murphy advised that he will investigate whether any other municipalities have an accelerated program. Councillor Fernandes commented that the more the City spreads out, the more infrastructure that will eventually have to be replaced. She suggested that development should be concentrated in the existing serviced area. Councillor Fernandes then indicated that it was her understanding the Stormwater Utility would be revenue neutral. Mr. Murphy advised that there are two components: the base budget plus an increase in service level. This will allow the City to undertake stormwater management projects; such as, Victoria Park Lake. Mr. Chapman noted that last year Council approved a business model for the Stormwater Utility that included a 3% increase. Respecting the proposed credit policy, Mr. Murphy advised that a report in this regard will be coming forward and if Council decides on a different policy, the figures presented today will have to be changed. POTENTIAL REDUCTION ITEMS The Committee reviewed the Potential Reduction Items listed in the agenda package along with the Issue Papers detailing each item. Councillor Vrbanovic questioned the elimination of "Your Kitchener", stating that Kitchener Utilities and the Kitchener Memorial Auditorium use this method of communication for advertising. He questioned what the impact will be on advertising budgets, if they were required to use a different newspaper of advertising. He also questioned consistency with the City's practices on community engagement and staff agreed to provide an Issue Paper further detailing this proposal. In response to questions, Ms. A. Bailey advised that "Your Kitchener" is delivered to 63,000 households by the Waterloo Region Record, and the Kitchener Citizen is delivered to 66,000 households. Councillor Janecki questioned the advertising budget of the various City divisions and was advised that information would be included in the requested issue paper. Councillor Etherington questioned the value of "Your Kitchener"; whereas, Mayor Zehr spoke in favour of keeping this City newspaper, noting that not everyone is connected to electronic media. Councillor Davey requested that the Issue Paper include distribution costs for "Your Kitchener" if it would be delivered by the Kitchener Citizen. The Committee next considered Issue Paper PR02 respecting the Holiday Parking Subsidy. In response to questions about discussions, Mr. C. Bluhm advised that discussions have taken place at the staff level with the Kitchener Downtown Business Association and are anticipated to take place with the Board. He noted that a report on those discussions is anticipated to come forward in January 2012. Councillor Gazzola questioned Issue Paper PR18 respecting reducing the sidewalk infill capital program and whether it is part of the Capital budget or Operating budget. Mr. Chapman advised that it is part of the Capital budget funded from current tax revenue. Councillor Gazzola then requested a complete summary of all categories of each division's budget for 2011 actuals and the 2012 budget, to be provided prior to final Budget Day. Councillor Vrbanovic questioned whether there has been any discussions with the Neighbourhood Associations (NA) respecting Issue Papers PR10 to PR13 and was advised by Ms. Campbell that discussions have been limited but will increase closer to Budget Day. Councillor Vrbanovic stated that NA do great work at no cost to the City. If the NAs become demoralized, the City would have to start paying for this work. He stated that he was very surprised to see these suggestions and stated that staff is targeting the wrong things. SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE 1. FCS-11-217 - 2012 OPERATING BUDGET ICONT'D Councillor Vrbanovic next referred to Issue Paper PR15 concerning City owned festivals, and questioned the amount of corporate sponsorships. Mr. Young advised that staff have made significant strides respecting obtaining corporate sponsorships for these festivals and will continue to pursue them. Further, staff will also be seeking corporate sponsorships for new festivals that are being developed. Mayor Zehr commented on Issue Paper PR15 that staff should be cautious about adding another festival if one of the existing festivals is to be removed. Councillor Galloway questioned if there are any sites close to the ones identified in Issue Paper PR06 that could accommodate the children from the five Summer Playground Programs. Ms. Palubeski advised that staff will be redeployed with the intension that the programs are located close to where the patrons live. She added that registration ends one week before the programs begin and if the registration is low, staff will discuss the matter with the families. In response to questions regarding the movie licences outlined in Issue Paper PR10, Ms. Campbell advised that in addition to the NA, the licences are used by rental groups and City programs. In terms of sharing the costs, Ms. Campbell indicated that approximately only two NAs could afford the costs. In response to questions from Mayor Zehr concerning the sidewalk infill program, Mr. McTaggart advised that the program has not been implemented for the last two years; as the gas tax funding has been used for other projects. Ms. P. Houston noted that this change has been shown in the Capital Forecast. Respecting the Property Tax Administration Fee, Mayor Zehr asked that staff examine the applicability, adding that in the case of minor changes the fee seems a little unreasonable. Ms. J. Evans stated that staff is aware of the problems associated with the administration fee and agreed to provide information in this regard. Councillor Janecki referred to Issue Paper PR17 respecting the Property Tax Administration Fee and questioned whether the Cities of Cambridge and Waterloo have a utility administration fee. Ms. Evans advised that she would investigate and also report back on that issue. Mayor Zehr next commented on Issue Papers PR21 and PR22 respecting Sportsfield and Turf Maintenance, noting that as many complaints are received about grass as there are about snow clearing and stated that he could not support the proposed reductions. Councillor Etherington spoke against the potential reductions for Summer Playground Programs and reductions to any children's or youth programs. Councillor Etherington then declared a pecuniary interest with Issue Paper PR16 respecting the grant to the Residential Energy Efficiency Program CREEP), as he is currently having insulation installed in his home as a result of this program. Councillor Singh referred to Issue Papers PR5 to PR13 dealing with reductions to community programs, advising that he could not support any one of them. He requested that staff provide feedback from the users of these programs prior to final Budget Day. Respecting the sidewalk program and the gas tax rebate, Councillor Fernandes questioned whether Council can decide where this money is spent. Mr. McTaggart advised that there is a wide range of projects that can be funded. Mr. Chapman added that no money has been allocated to the sidewalk infill program over the last few years. He noted that $68,000. has been included in the Budget for this purpose, which may be unencumbered. Respecting the $10,000. reduction for Facilities Management outlined in Issue Paper PR19, Ms. Fletcher advised that a strategic plan will be undertaken which should reduce costs by $10,000. In addition, consistent processes and practices will be developed respecting corporate leases. SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE FCS-11-217 - 2012 OPERATING BUDGET (CONT'D) In response to questions from Councillor loannidis concerning reductions in playground programs, Ms. Palubeski advised that most are '/2 day programs and working parents need full day programs, so staff are moving in that direction. She also advised that programs in community centres are more desirable than programs in schools. Councillor Glenn-Graham stated that it is important to maintain service levels in the community, so for the most part these programs should be preserved. He questioned the normal time for opening the Civic Square skating rink. Ms. Kugler advised that it is normally occurs on December 15t in time for the Christkindl Market; however, if the weather is cold in November, it may open earlier. In response to questions from Councillor Glenn-Graham about the amount chosen for the Revenue Administration Fee, Ms. Evans advised that $35. was chosen so as to be consistent with the Utility Administration fee. Councillor Glenn-Graham then questioned the potential reduction for Sportsfield Maintenance, Mr. Witmer advised that there may be an impact on the price that can be charged for use of these sportsfields and he was directed to provide information on the potential impact of such a reduction. In response to questions concerning Issue Paper PR23 regarding a temporary labour hiring delay, Mr. Witmer advised that it would be better to save money at the end of the season, as a delay at the beginning of the season may cause problems for users. He was directed to provide additional information on the impact of this proposal. Mr. Hagey then proceeded to explain next steps, advising that amortization and post- employment benefits are not included in the Budget; however; Council must pass a resolution in this regard and accordingly, they will be included in the report /resolution for final Budget Day. He stated that prior to final Budget Day there would be a public meeting to gather input on the 2012 Budget. Mr. Hagey was directed to provide details by final Budget Day of any revenues that would be lost if the potential reductions in Issue Papers PR21 and PR23 were to be implemented. Councillor Glenn-Graham requested that an Issue Paper be brought forward for final Budget Day on the impacts related to freezing senior management salaries in 2012 for the City of Kitchener, Kitchener Public Library and the Centre in the Square. Mr. Hagey proposed that the Committee adopt a resolution regarding the directions put forward during this meeting. He then provided the Committee with a list of those items. On motion by Councillor B. Vrbanovic - itwas resolved: "That staff be directed to report and/or take appropriate action on the following matters arising from the December 5, 2011 special Finance and Corporate Services Committee meeting relative to the 2012 Operating Budget, as outlined in the chart below: TOPIC ACTION Topic -General Overview Provide an analysis that breaks out the general expense item from the Net Expenditure by Department chart (Page OP-20 into its ma~or com onent arts. Provide an analysis that breaks down total expenses by cost element Salaries, Utilities, etc. . Provide information on the benefit plans across the various employee groups and identify whether the City is required to a benefits for art time and tem orar em to ees. Provide information on how the City negotiates credit card agreements as well as how often are credit cards used and if the Cit can char e customers a convenience fee. Provide further details on Kitchener-Wilmot Hydro dividend olic . Unfunded Items For final Budget Day. provide an Issue Paper detailing of the current a in ro ram. Provide information on Parking Fine Revenue, specifically: what the impact would be if the parking fine was reduced to from $25. to $20., and if a portion of the profits from private ro ert tickets can be rovided to ro ert owners. Provide information on the ro osed Eco-Event related to SPECIAL FINANCE AND CORPORATE SERVICES COMMITTEE partnering with the City of Waterloo (when their event will be held, in order to maximize attendance), and research s ecific communities that have run similar events. Core Complement Increases Provide further details as to whether the Site Plan Inspector position could be part-time versus full-time, as a means of rovidin some bud et savin s. Enterprise Reserve Funds For final Budget Day, provide information on the creation of Enterprise Reserve Funds and examples of two enterprise stabilization reserve funds. Gas Works Utility Prepare analysis on possible Gas Rate reduction scenarios and the effect on a) Revenues, b) Gas Capital Investment Reserve Fund su I rate verses Union Gas For final Budget Day, provide an Issue Paper on transferring $3M, $2M, $1 M to the Tax Stabilization fund from the Gas Capital Investment Reserve Fund because of 2011 erformance. Sanitary & Water Prepare updated on water /sewer projections as a result of changes implemented by the Region of Waterloo and include rate com arisons with other munici alities. Potential Reductions PR01 Your Kitchener: How will enterprise advertisements be impacted if Your Kitchener is cut? What is the lost advertising revenue if they discontinue producing Your Kitchener? Provide matching quotes and options for the Kitchener Citizen same basis as Kitchener Post. PR17 Property Tax Administration Fee: Provide additional information on the circumstances for when the property tax admin fee will apply. Confirm that Waterloo and Cambridge are also char in Ownershi and Utilit transfer fees. PR21 Reduced Sportsfield Maintenance and PR23 Temporary Labour Hiring Delay: What is the lost revenue associated with PR21 and PR23 if these reductions were done. PR10, PR11 and PR12 Potential Reductions Impacting Neighbourhood Associations: staff to notify affected Neighborhood groups of potential reductions; thereby, providing them with an opportunity to attend the public input session bein held Januar 9. 2012. Divisional Budget Information For final Budget Day. provide an Issue Paper on the impact of freezing salaries for Council, management. Centre in the S uare and Kitchener Public Librar . Provide additional financial information that includes: 2011 bud et, 2011 actuals, 2012 bud et. ADJOURNMENT On motion, the meeting adjourned at 5:05 p. m. D. Gilchrist C. Goodeve Committee Administrator Committee Administrator